Pre-Approval Gives You An Edge
Getting The Loan: Table Of Contents
Pre-approval vs Pre-qualification
Getting pre-approved for a home loan can bring some major benefits. Most notably you will have more bargaining power and clout with home sellers.
Before I get into further detail about the benefits of pre-approval let me explain that there is a difference between pre-approval and pre-qualification.
What does it mean to be pre-qualified for a home loan?
Getting pre-qualified for a home loan means you submit your financial info (gross income, credit score, debts etc) to a home mortgage lender so they can evaluate what size home loan you are eligible for.
It’s kind of like a test run for a mortgage application because the lender does not follow up to verify your financial info.
Pre-qualification is nonbinding since they essentially take your word that the financial info you submit is true.
Why get pre-qualified for a home loan?
Getting pre-qualified is free and (if you’re honest) gives you a good idea of what you can actually afford. There are no obligations and knowing your financial parameters is crucial to making prude decisions.
What does it mean to get pre-approved for a home loan?
Getting pre-approved is one step better than getting pre-qualified. You submit your financial info (income, assets, credit score, debts etc.) to a home mortgage lender who then contacts your employer, bank, credit agency etc. to verify your information.
If everything checks out, the mortgage lender issues you a “statement of approval” for a mortgage size that best fits your financial info.
For example, a home mortgage lender may analyze your financial info and deem you fit for a home loan of up to $200,000.
Why get pre-approved for a home loan?
Pre-approval lets you know exactly what your financial parameters are. This gives you bargaining leverage with home sellers since they know you have buying power.
If a home seller is presented with two offers, one from a pre-approved borrower and one from a non-pre-approved borrower, they will gravitate towards the one who is pre-approved. You may even be able to negotiate a cheaper home purchase price since the home seller knows you will be approved for your home loan.
Real estate agents love working with pre-approved borrowers since it allows them to target homes that truly “fit”.
Keep in mind…
Pre-qualification and pre-approval indicate the maximum amount a lender feels you can afford.
If you get approved for a $200,000 home loan it does not mean you have to go out and spend $200 grand on a new pad.
Many new buyers run out and grab biggest house they can afford… this doesn’t leave much wiggle room to do things like furnish the place or pay for home maintenance costs (utilities, land scaping etc.) It is also prude to leave yourself some outs in case your financial situation suddenly turns for the worst.
Continue: Steps in the application process